Austrian Banks Carry €2.6 Trillion in Derivatives - Risk Unknown To Central Bank

Monday, September 20, 2010

Austrian banks may be sitting on a €2.6 Trillion off balance sheet derivatives time bomb and the central bank does not know how much risk is involved in these trades.
Oesterreichische Nationalbank (OeNB) governor Ewald Nowotny said in a live chat of Austrian daily "Der Standard", he could not provide a material ad hoc figure for the actual net risk of these trades.
According to a (German language only) press release from last Thursday off balance sheet derivatives volume grew a stunning 13% to a record volume of €2.586 Trillion at the end of H2 2010 in Austria. This is roughly 2.5 times as much as the nationwide balance sum of all banks which stood barely unchanged at €1.037 Trillion in the same period.
It also has to be noted that this growth comes at a time of global de-leveraging and may indicate that Austrian banks try to make up for loan losses in Central Eastern Europe with bets on interest rates and currencies.

80% of derivatives are hedges/bets on interest rates and 20% are currency and gold derivatives.
As a side note: It is interesting to see that the OeNB considers gold a currency, after German authorities had said otherwise earlier in a rather idiotic move.

Risk May Lie Somewhere Between €125 And €250 Billion
According to industry insiders the actual risk after netting out short and long contracts may lie somewhere between 5% and 10% or €125 billion to €250 billion. In comparison Austria's GDP came in at €274 billion in 2009.
Nowotny said he hoped that the EU would realize a central clearing institution for derivatives as soon as possible.
This may take a few years, though. Although the EU has been talking about stricter derivative regulation, not a single step of action has been taken since the onset of the crisis more than 3 years ago.
This may originate in the common fear - one of the last things uniting Europe these days - that all European banks would suffer heavily if they were to bring OTC derivatives on their balance sheets. This is a safe speculation.

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